30 October 1997 External T.I. 9714095 - ACTIVITIES OF A PENSION REALTY COMPANY

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether the development of undeveloped real estate is an activity permitted in clause 149(1)(o.2)(ii)(A).

Position:

Yes providing the property was not acquired with the intent to improve and develop for sale.

Reasons:

The property must be a "capital property".

971409
XXXXXXXXXX J.E. Grisé
(613)957-2059
Attention: XXXXXXXXXX

November 4, 1997

Dear Sirs:

Re: Paragraph 149(1)(o.2) of the Income Tax Act

This is in reply to your letter of May 27, 1997 concerning the acceptable activities of a pension plan real estate corporation that is relying on subparagraph 149(1)(o.2)(ii) of the Income Tax Act in order to qualify as a tax-exempt corporation.

Clause 149(1)(o.2)(ii)(A) of the Act limits the activities of pension plan real estate corporation to "acquiring, holding, maintaining, improving, leasing or managing capital property that is real property or an interest therein owned by the corporation". In our view, the overriding limitation on the activities permitted is that the property remain "capital property". Activities undertaken to increase the return on investment on the capital property would be acceptable. In this context, the development of capital property (e.g., undeveloped real estate) may be synonymous with the improvement of capital property as long as the activities are associated with the earning of passive investment income on capital property. However, activities undertaken with respect to a property that was acquired with the intent to improve and develop for sale at a profit would not be acceptable. Whether a property is acquired with the intention of holding and managing it as an investment or with the intention to resell the asset itself at a profit is a question of fact. We also refer you to paragraph 3 of IT-218R, which lists several factors which would need to be considered in resolving whether in fact the asset was a capital property.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch